Creating the Framework for a New Type of Investment Approach
By Mike Head & Jonny White, Senior Advisers to The Justice Company
Since 1997, Ethical Screening has worked with investors who want their portfolio to reflect more than just financial returns. But the work we’ve done with the cornerstone investors of The Justice Company began, as many good ideas do, with a problem that no-one else had seemed to have solved.
The founders of The Justice Company had set out to find an investment framework that would allow investors to participate in markets without exposure to the most serious human rights abuses such as genocide, apartheid, occupation and related violations. It’s a simple enough idea to grasp, but when they started to look for a solution, they found none existed.
They explored existing ESG frameworks and data providers, but none addressed the core issue of how to define, identify and consistently exclude companies materially involved in these severe human rights abuses in a credible, systematic and defensible way.
And that’s what led them to us.
At first glance, it seems a straightforward enough proposition. An investment approach like this should exist. The vision is easy to understand. In practice though, it’s anything but. Take a seemingly neutral company - one that makes components for something as innocuous as elevators for example. On the surface it appears uncontroversial. But is there exposure in its supply chains? Where are those components used? What projects are they part of? What regions does it operate in? How are the end components used?
Answering these questions for a single company can take hours, and even days. Multiply that work across a universe of potential companies and institutions, great and small, and you begin to see why this is such a difficult bar to clear for most investment vehicles, despite the clarity of the vision.
It’s not that the data isn’t available - it generally is - but in our experience, it’s fragmented, inconsistently reported or difficult to access or interpret. There are no easy shortcuts, requiring manual work by skilled researchers who are prepared to find the evidence, which may span across different sources and jurisdictions.
It took months of research before we could even begin to build the screening model at the core of The Justice Company’s framework.
Exclusion With No Exceptions
We started by establishing a non-negotiable boundary: no exposure to companies that profit from genocide, occupation, apartheid, and human rights violations of a similar magnitude. We then had to decide: What “counts”? When does a company materially benefit from human rights abuses? Are there differences in degree? Should there be a difference between long-standing disputes in sovereignty, and active and ongoing apartheid? Which observers and bodies of authority can be trusted to have an accurate read on the situation?
We began by identifying the areas where the underlying facts are not in dispute. The Geneva Conventions, the UN Guiding Principles on Business and Human Rights, and related international frameworks already define categories of conduct that are widely understood and documented.
We supplemented this with insights from independent organisations like Amnesty International and Freedom House.[1] We also worked with regional experts to understand how these issues manifest in different parts of the world, and to better understand the reliability of the data we uncover in our screening efforts
Equipped with a variety of authoritative perspectives, we set to work building a screening model that starts from a basis of exclusion, rather than scoring. There are categories of conduct that should disqualify a company wherever they occur, which is what the framework seeks to address. Incremental progress is not sufficient. A company is either materially involved in serious human rights abuses, or it’s not.
This stands in contrast to much of the ESG industry, where relative improvement and broad inclusion is commonplace. It’s an approach that has its place, but it doesn’t address the need that this platform was designed to meet.
Meeting the moment
For us, this project represents the natural extension of the work we’ve been doing for decades; applying detailed, evidence-based research to help investors align their capital with their convictions. The clarity of the objective and the level of precision required to deliver it, set this project apart.
The Justice Company’s investment approach is built on that foundation, and provides investors access to developed market equities while applying a consistent and defensible human rights screen. And it arrives at a time when the abuses it seeks to exclude have never been more deeply woven into the products and services used in everyday life. There is an undeniable demand from investors who wish to grow their wealth without rewarding the companies that seek to profit from displacement, ethnic cleansing, and other human rights violations.
It is our hope that Ethical Screening’s foundational work in developing the framework that underpins The Justice Company’s approach will resonate with other investors who demand a fundamental standard of sanity and accountability for human rights. We truly believe The Justice Company can create accountability and change for the better in a world sorely in need of both.